Finance Business Housing Finance Companies

Housing Finance Company Registration: Step By Step Registration Process

Housing Finance signifies finance for meeting the various needs related to housing. The primary purpose of the Housing Finance Company is to offer funds to purchasers to acquire their homes. Housing Finance Company is treated as one of the categories of Non-Banking Financial Companies (NBFCs) for regulatory purposes. Hence the main object of HFC is to carry the business of providing finance for housing, whether directly or indirectly. National Housing Bank Limited (NHB), a subsidiary of RBI regulates the Housing Finance Company.

What is the Housing Finance Company?

A Housing Finance Company is a finance company registered under the Companies Act, 1956.  The principal business of Housing Finance Company is to provide finance for the acquisition or construction of houses that include the development of plots of lands for the construction of new houses.

According to Section 29A of the National Housing Bank Act, 1987, it is mandatory for every proposed Housing Finance Company to get a certificate of registration from the National Housing Bank before initiating activities related to housing finance.

What are the requirements for registration of Housing Finance Company with the National Housing Bank?

A company registered as HFC under the Companies Act, 1956 having an aim to commence the business of housing finance institutions must comply with specific requirements. National Housing Bank on fulfillment of following conditions provided under Section 29 (4) of the National Housing Bank Act, 1987 by a company, may grant a Certificate of Registration.

• The original transaction of Housing Finance Company should be of providing finance for housing, whether directly or indirectly.
• The minimum Net Owned fund requirement is Rs. 10 crores.
• Housing Finance Company shall pay to its present or future depositors in full as and when their claims accrue.
• All the affairs of the HFC must be conducted in a manner benefitting the interest of its present or future depositors.
• The general character of the management of the HFC must not be prejudicial to the public interests or the interests of its depositors.
• HFC must have adequate capital structure and earning prospects.
• Granting of the certificate of registration to the HFC to carry on business in India must be in public interest.
• Granting of the certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector.
• Any other condition or fulfillment prescribed by the National Housing Bank for commencement or carrying on the business in India by HFC shall not be prejudicial to the public interest or for the benefit of the depositors.

What are the Documents required to file an Application for Housing Finance Company?

Below is the list of documents required to apply to HFC Registration:

What are the provisions for the regulation of HFC under the National Housing Bank Act, 1987?

The Provisions for the regulation of Housing Finance Companies are as follows:

What is the process of Housing Finance Company Registration?

To complete the process of Registration of HFC, an applicant has to:

• Submit the physical copy of the application in duplicate.
• All the necessary documents mentioned above must be submitted along with the application.
• The application must be addressed to the Head Office of the “National Housing Bank”.
• A Demand Draft of Rs. 10,000/- must be made in favour of the National Housing Bank payable at New Delhi.

What is meant by Net Owned Fund or NOF In Housing Finance Companies?

• The net owned fund consists of paid-up equity capital, free reserves, balance in share premium account and capital representing surplus arising out of sale proceeds of assets but not reserves created by revaluation of assets.
• From the aggregate of items accumulated loss balance and a book value of intangible assets, if any, will be deducted to arrive at owned funds.
• The net owned fund should be computed based on the last audited Balance Sheet and any capital raised after the Balance Sheet date. 
• Investments in shares of other companies and shares, debentures of subsidiaries of group companies above ten percent of the owned fund mentioned above will be deducted to arrive at the Net Owned Fund.

Circumstances Where National Housing Bank can cancel Certificate of Registration of HFC

According to Section 29A (5) of the National Housing Bank Act, 1987, the National Housing Bank may cancel the certificate of registration granted to a HFC under the following circumstances:

• It ceases to carry the housing finance business in India.

• It has failed to comply with any provisions subject to which it was issued Certificate of Registration.
• If at any time it fails to fulfill any of the conditions mentioned in clauses (a) to (g) of Section 29A(4) of the National Housing Act, 1987.
• To maintain the accounts following the direction or order issued by the National Housing Bank.
• If it fails to comply with any direction issued by the National Housing Bank regarding the management of HFC.
• Failing to submit the books of account and other relevant documents demanded by an inspecting authority of National Housing Bank.
•  National Housing Bank has prohibited it from accepting deposits, and such order has been in force for not less than three months.

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Conclusion

The Housing Finance system is in an elementary stage in India. It is, therefore, necessary to have a great deal of stability in terms of resource development, policy development, and institution building. National Housing Bank has set up guidelines for recognizing Housing Finance Companies for its financial assistance. The National Housing Board, along with RBI, also has the task of regulating deposits taking activity of the Housing Finance Companies. As prescribed in Section 29A of the National Housing Bank, 1987, Housing Companies must obtain a registration certificate. Since it is a complicated process it is better suggested to consult our experts in Enterslice.

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